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New Paper By NERA Economist Advocates Access Tiering vs. Regulation in Net Neutrality

18 September 2007

Boston, MA/ 18 September 2007 -- Harmful economic consequences await software application providers, network end-users, and telecommunications carriers alike if efforts to prevent differentiated quality of service (QoS) over the Internet succeed, according to "Freedom, Regulation, and Net Neutrality," a new paper released today by an economist from NERA.

According to the author, NERA Senior Vice President and Global Communications Practice Chair Dr. William Taylor, allowing differential QoS via the practice of "access tiering," in which applications that pay for higher QoS receive network priority, will maximize the value of the Internet as an asset to society, as well as spur innovation in a market-determined network architecture.

Dr. Taylor's paper explores the current debate over the principle of net neutrality and regulations designed to support the neutrality of the Internet, which he argues embodies at its core a fundamental contradiction. While some parties extol the freedom of the Internet -- freedom from metering and from such government interference as taxation, commercial regulation, or political or moral censorship -- others argue that the Internet is a business, and their facilities and the services that ride upon them must be managed and priced to be as profitable as possible. The contradiction arises when those desiring freedom from government interference advocate government regulation to protect themselves from potential anticompetitive actions or monopolistic exploitations by those who supply last-mile broadband access to the network.

Dr. Taylor focuses on whether the current Internet standard of "best effort" carriage of data packets should be modified to allow carriers to provide different QoS for a price to different applications, different application providers, or different customers. While supporters of Internet regulation have said that phone and cable companies could discriminate against certain websites and services, Dr. Taylor argues that imposing a net neutrality regulation could hamper development of the Internet (particularly bandwidth-needy applications), discourage service providers from upgrading or expanding their networks, and shift the burden of implementing costly network expansions and improvements onto consumers.

The issue of net neutrality is currently being considered by the US House of Representatives and the US Senate. On 6 September 2007, the Justice Department filed an opinion stating that Internet service providers should be allowed to charge a fee for priority traffic on the Web.

NERA Economic Consulting (www.nera.com ), founded in 1961 as National Economic Research Associates, is a unit of the Oliver Wyman Group, an MMC company.

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